Gas prices in Europe dropped below $300 per 1 thousand cubic meters

Gas prices in Europe have dropped below $300 per 1 thousand cubic meters – this is the lowest level since June 2023. This time, prices on the continent were helped by the Isha storm, which brought more moderate temperatures and strong winds to the continent. As a result, wind power generation covered up to a third of the electricity demand in Europe. In addition, EU countries continue to benefit from high reserves in underground gas storage facilities – sufficient to see them through the rest of the winter – and stable supplies of LNG.

European gas prices fell by 6.3% on January 22, to $299.8 per 1 thousand cubic meters, this is the lowest level since June 2023. At the close of trading, February futures on the Dutch TTF hub were trading at $310 per 1 thousand cubic meters, the spot price for gas for the day ahead was about $304 per 1 thousand cubic meters, according to ICE Futures data. Prices were impacted by warming temperatures and strong winds caused by Storm Isha, which has already caused disruptions to transport and utilities in Northern Europe.

Uncharacteristically high temperatures for this time of year, which are expected to persist throughout the week, and high wind output are reducing the continent’s need for gas for heating and power generation and giving the market a short-term respite.

So, according to WindEurope, wind power generation on January 21 accounted for up to 32.3% of the total energy balance on the continent versus 19.5% throughout last week. In Germany, wind farms generated up to 70% of electricity.

High reserves in underground storage facilities, which are at the level of 75%, help Europe lower prices. Due to warming, the rate of withdrawals from underground gas storage facilities also decreased compared to last week. Meanwhile, the continent is more than halfway through its withdrawal season, and with stable LNG supplies and sluggish demand from energy-intensive industry, Europe could emerge from the winter with fairly high inventories.

By the beginning of the next season, EU countries will have to fill storage facilities to the target 90% of reserves in the face of limited supplies of pipeline gas from the Russian Federation, which Europeans have so far successfully replaced with pipeline supplies from Norway and LNG from the USA, Qatar and the Russian Federation.

Mild weather is also holding back demand for LNG, which is why spot prices for shipments in North-West Europe are still declining, even despite the escalation of the conflict in the Red Sea. Due to an increase in attacks on commercial shipping, Qatar has redirected several of its LNG ships from the Red Sea to the longer, less cost-effective route via the Cape of Good Hope. Shell and Russia’s NOVATEK have reportedly followed suit. However, for now the market continues to monitor the situation, expecting that if the conflict drags on, then in the future this could lead to a reduction in LNG supplies and an increase in prices in Europe, while simultaneously increasing pressure on the market in Asia.

According to Sergei Kondratiev from the Institute of Energy and Finance, by the end of the winter period at the end of March, the occupancy of UGS facilities in the EU will be at the level of 51.9–52%, that is, close to the maximum levels of 2023 (55%) and much higher than the figures for 2019–2022 years. Thus, European underground gas storage facilities will contain about 51.5–52 billion cubic meters.

This, in his opinion, creates comfortable conditions for preparing for next winter, but much will depend on the situation on the markets in Asia. “Now demand in China is recovering quickly, and this could become a challenge for the European market,” he says, noting, however, that with such initial parameters, by the beginning of the autumn-winter period 2024/25, the EU will most likely approach with underground gas storage facilities filled with more than by 90%.

Tatiana Dyatel